“Don’t
let Bill Sizemore raise your insurance rates - or ours.” That’s the final
sentence in a homey sounding letter, which recently was distributed to
voters all across the state of Oregon. A friend sent me a copy this morning
and I admit I had to chuckle as I read it. I didn’t even know I had the
power to raise insurance rates.

The
letter purports to come from one Peggy Browne of the “Browne
Family Farm.” Sounds friendly enough. In fine print, however, at the
bottom of the page, there is a disclaimer, “Paid for by Oregonians Against
Insurance Rate Increases,” meaning the letter is really a clever bit of
propaganda paid for by the insurance industry, which is spending millions
in a desperate attempt to defeat Measure 42.

Measure
42, which I wrote, would prohibit the obscene practice of using credit
scoring to establish consumer insurance rates or premiums. In case you
weren’t aware of it, insurance companies across the country routinely
check your credit before issuing you a policy and base their rates largely
on the credit scoring models they have created. Consumers beware: The
entire system is a scam.

The
truth is, companies generally do not use your real credit score. They
create their own “unique scoring model,” which conveniently is a proprietary
trade secret. Your insurance credit score may bear no resemblance to your
real credit score. Insurance scoring models are so convoluted that people
with 750 or higher credit scores often do no qualify for preferred rates,
for such reasons as “having too many credit cards.” Never mind that their
balances are low and they have never been late on a payment in their life.

Consumer
Reports Magazine performed an investigation to test the accuracy of insurance
credit scoring, which the companies claim is amazingly precise. The magazine
created a fictional person with a fixed history of bad credit and requested
rate quotes from several of the larger insurance companies, all in one
part of the country. Just how precise were the credit scoring models?
The rate quotes for this one fictional person ranged from approximately
$1,400 per year to $4,800 per year, all using the same credit history.

Consumer
Reports also stated that one out of every four Americans has serious errors
on his or her credit record, which adversely affects both the person’s
credit and the rates insurance companies charge for coverage. Heaven help
you if you are widowed, recently divorced, or going to college. All of
these factors statistically can make you a likely victim of inflated rates
due to weakened credit scores.

Victims
of Katrina or 9/11 type disasters are also likely to suffer temporarily
lower credit scores and thus higher insurance rates. In other words, for
decades you pay premiums for insurance coverage, then when you actually
use the product you bought, they hit you twice. Once for filing a claim
and then again for the reduction in your credit score due to the effect
of the disaster on your personal finances.

What
if you are buying a house and have applied for several mortgage loans
in an attempt to find the lowest interest rate. Every time a lender checks
your credit, he lowers your credit score and potentially increases your
insurance rates. (Multiple credit checks lower your credit score.) Why
are you suddenly a greater insurance risk because you are shopping for
a lower interest rate.

Is there
a real correlation between credit score and frequency of claims? Perhaps
a slight one. But get this: the correlation is so slight that 96 percent
of those with less than perfect credit have perfectly normal claim frequencies.
In other words, 96 percent of those with weak credit are being punished
for the behavior of a handful of bad apples, most of which could have
been charged higher rates based on their driving records and past history
of filing claims without ever looking at their credit score.

It might
comes as a surprise to many, but insurance credit scoring is so indefensible
that even the agents who sell insurance for the big companies overwhelmingly
condemn the practice. Measure 42, which bans insurance credit scoring
outright, is supported by the national agent associations of such large
companies as Farmers, State Farm, Allstate, and American Family. Many
agents of these companies have told me personally that they would speak
out on this issue, but fear that they would be fired. Their national agent
associations, however, filed endorsements for Measure 42, which I listed
in the official voters pamphlet.

One
point the agent associations stress is that credit scoring is a backdoor
way for insurance companies to practice racial and neighborhood “redlining.”
You see, it is illegal under federal law to redline. However, by using
secret, proprietary credit scoring models, insurance companies can discriminate
without ever appearing to have done so. Credit scoring allows companies
to charge higher rates to minorities and ethnic groups, which typically
have lower credit scores, while all the while appearing to have ignored
the customer’s ethnicity. Never mind the fact that the Hispanic customer
has a perfect driving record. He pays more for insurance, because he has
been late paying some bills.

It is
interesting to note the origination of credit scoring and how it works.
The idea originated, not with the insurance industry, but with one of
the large credit scoring companies. The creator of insurance credit scoring
built a list of approximately 120 factors related to credit, from which
the insurance companies could pick a mere 15 to 20 criteria and form their
own unique, secret, credit scoring model. The idea was a win/win for both
industries.

The
credit companies make a fortune due to all of the credit checks the insurance
companies make. The insurance companies win because they have a simple
source for rating customers and do not have to mess so much with tracking
a person’s driving record, the number of tickets, accidents, or arrests
for driving under the influence.

It’s
all the same to the insurance industry. Their goal is simply to maximize
the amount of premiums they collect. What do they care whether the system
is fair or equitable, or for that matter, logical. The end loser is of
course the American consumer, especially those with excellent driving
records and less than perfect credit histories.

One
message the insurance industry will employ to defeat Measure 42 is to
claim that the measure will result in an increase in insurance rates for
those with good credit. Undoubtedly, their ads will threaten a wholesale
increase in rates for those with good credit, if credit scoring is outlawed.
Call their bluff. Ask them to prove it. Ask them how much they will increase
everyone’s rates. They won’t answer you, because they can’t. They’re bluffing.

According
to Consumer Reports Magazine, in most states insurance companies were
allowed by the state insurance commissioner to increase their base rates
when they first adopted credit scoring. In return, the companies were
allowed to give preferred or discounted rates to those with better credit.
In all likelihood, if credit scoring is banned, the state insurance commissioners
will force companies to lower their base rates and then charge higher
rates for those with real risk factors, such as having too many tickets,
wrecks, or DUI convictions.

Let’s
wind this up by applying a little common sense to the issue. How does
having a low credit score make you more likely to get into an accident?
Of course, it doesn’t. Why should a person with a low credit score and
a perfect driving record pay more for insurance than the rich guy down
the street, who totaled his Mercedes last year and filed an enormous claim?
Of course, he shouldn’t. Insurance credit scoring is all nonsense. There
is nothing fair or logical about it.

I realize
that some of my fellow conservatives might object to more government regulation
of business, which this measure is. To them, I would simply respond: When
government requires citizens to buy a product, as is the case with insurance,
the product is no longer truly a “free enterprise” product. We have to
buy their product. We have no choice. When we are required by law to buy
a product, the playing field is automatically tilted in the seller’s favor,
in which case it is important that reasonable controls be installed to
insure that consumers are not gouged.

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Passing
Measure 42 is the right thing to do. Credit scoring is an unconscionably
unfair and discriminatory practice. Please join me in ending insurance
credit scoring in the state of Oregon. Let’s force insurance companies
to play the game fairly and honestly. In the end, we will all be better
off.

Bill Sizemore is a registered Independent who
works as executive director of the Oregon Taxpayers Union, a statewide
taxpayer organization. Bill was the Republican candidate for governor
in 1998. He and his wife Cindy have four children, ages eight to thirteen,
and live on 36 acres in Beavercreek, just southeast of Oregon City, Oregon.

Bill Sizemore is considered one of the foremost experts on the initiative
process in the nation, having placed dozens of measures on the statewide
ballot. Bill was raised in the logging communities of the Olympic Peninsula
of Washington state, and moved to Portland in 1972. He is a graduate of
Portland Bible College, where he taught for two years. A regular contributing
writer to www.NewsWithViews.com.

Consumer
Reports also stated that one out of every four Americans has serious errors
on his or her credit record, which adversely affects both the person’s
credit and the rates insurance companies charge for coverage.